The billionaire financier Michael Ashcroft reached an out-of-court settlement last night over his libel action with The Times newspaper after securing an acceptance that he was not involved in drug-running or money-laundering.

The billionaire financier Michael Ashcroft reached an out-of-court settlement last night over his libel action with The Times newspaper after securing an acceptance that he was not involved in drug-running or money-laundering.

Mr Ashcroft, a tax exile with a business and banking empire based in the Central American Commonwealth state of Belize, will return to Britain and pay taxes here as part of a move to end the attacks on his role as Tory Party Treasurer.

The deal is certain to raise speculation that Mr Ashcroft sought to avoid a damaging court battle - even though it was expected he would win it - to help secure the support of one of the Murdoch titles for the Tories in the run-up to the general election. There were clear hints that the Tories were keen to settle the deal in order to restore relations with the Murdoch press. One close friend of the Tory party treasurer said: "Relationships between The Times and the party are hardly normal - this enables everyone to get back to business."

Sources refused to say last night whether William Hague, the Tory leader, had been consulted before the settlement was reached, but he is clearly hoping to end the criticism that the Tory party, by accepting Mr Ashcroft's cheques from foreign banks, is funded from overseas. It is likely that Mr Ashcroft will give up his United Nations role as an ambassador for Belize.

A friend of Mr Ashcroft said: "This was never about the money. If this had gone to court, there is no doubt he would have won and he might have been granted £2m or £3m. Michael is sufficiently wealthy for that not to be a factor. Having a libel case dragged out through the year 2000 would not have been very good for the Conservative Party and terribly distracting for Michael."

Costs are being paid by either party. Although there was no formal apology, Mr Ashcroft accepted the settlement because it removed the alleged question mark over his fitness to operate as the Tory party treasurer and a very substantial donor to the Conservatives.

Friends of Mr Ashcroft said there had been "give" on both sides. Mr Ashcroft accepted that there was public interest in the funding of British politics and he intended to reorganise his affairs to return to Britain. But he made it clear that he intended to continue as treasurer of the Conservative Party.

The settlement was intended to draw a line under the affair and it leaves The Times open to investigate Tory party funding. But there is a clear implication that the Conservatives will use the deal as a lever to gain the support of the Murdoch newspapers, which have been wooed by Labour leaders.

In a statement last night, The Times said: "
The Times is pleased to confirm that it has no evidence that Mr Ashcroft or any of his companies have ever been suspected of money laundering or drug-related crimes. ... With this statement, The Times intends to draw a line under 'The Ashcroft Affair'."